Going into Receivership

When a company goes into administration it is done with the primary goal of protecting the company and try to get it trading again while at the same time coming up with a payment plan that the creditors are happy with.

The administration process is carried out by an Insolvency Practitioner. However, receivership is entered into when the bank that has backed the company financially or other secured creditors have lost all confidence and want their money back. At that point an Official Receiver is appointed, but unlike the Administration Process, their primary goal is to sell assets and liquidate the company in order to secure the money of the creditors. They may even sell the company off in its entirety to raise the money required.

When a company starts up they usually apply for finance from a bank or other lending institution. It is normal practice for these lenders to insist on collateral to secure the loan. In most cases the collateral will be the assets of the company, i.e. the premises and equipment. Doing this ensures that should the company fail to succeed the lender can claim its investment back.

What To Do if Your are Facing Receivership

If you have been informed that you are facing receivership, seek the advice of your accountant at once. You will need their help to ensure that the books and accounts are up-to-date and that there are no discrepancies that could lead to prosecution. It is vital that you do this before the receiver arrives at your company because once they do, they have complete control over everything. It will be too late to change anything at that point. You may even be made redundant at that point, along with non-vital staff, unless the receiver deems it necessary that you are involved with the winding up process. As soon as the receiver no longer needs you, you will be dismissed.

In Receivership Status

When the receiver takes over control of the company it will cease to trade. All accounts will be closed, access denied to all members of the company and a new concern will be started. The new company will have the same name as the old one but it will end with the term 'in receivership' or 'in administration' so that it is known that the process of winding up has begun in earnest.

Company cars, equipment, stock and any other assets will be sold immediately to raise the cash needed to pay the secured creditors. Unless the Creditor is Secured it is unlikely that they will ever get any of their money back. The fees of the receiver will also be added to the total amount needed to close down fully and these fees can be very high.

However distressing going into receivership is, it can be a blessing in disguise. If your company is having problems you can use receiverships as a way to start again. The rules surrounding receivership mean that you can walk away from the company debts (unless you have signed any personal guarantees or traded fraudulently) and resume trading. You may even find that you can buy back the company assets for a seriously reduced price enabling you to reinvent your company again.

Creditor Problems

If you do manage to start your business again you will face wariness from creditors. They may only deal with you on the basis that you pay for goods up front and not extend credit to you. It is possible to go back into business but don't be surprised if you face some hostility at first.